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The times they are a changin'

“The times they are a changin”… The changing face of pensions in Ireland

When Bob Dylan penned his classic in 1964 the world was very much experiencing a period of rapid change. What’s more, we’ve seen the pace of change quicken dramatically ever since.

You only have to look at the development of the mobile phone. I’d my very first “mobile” in 1995, some twenty-two years since Motorola made the very first hand-held mobile phone. When I say mobile, it was actually attached to my car by a short curly wire, and relied upon an analogue signal. It was used for making phone calls and that was seen as cutting edge!

Fast forward to today and the mobile phone is basically a very powerful personal computer that can be carried in your pocket and probably its least common function is to make a telephone call!

You will of course be aware of most of the above but what you may not be aware of is that the pensions landscape in Ireland, which has seen many changes in the past twenty years, is also about to change even more dramatically.

The question is - Should you be concerned by this?  The answer is - Quite possibly.

A recent discussion document published by the Pensions Authority points to the likelihood that Personal Retirement Bonds (also known as a Buy Out Bond) and Personal Pensions will soon be no longer available. In an effort to “simplify the pensions landscape”, there will then be two types of pension available. A trust based employer sponsored pension or a Personal Retirement Savings Account.

So, you might wonder, who might this disadvantage? The most likely group to lose out will be those who currently have funds left in a previous employer’s pension scheme.

At present, the tax-free lump sum you can take in this situation is based upon a multiple of your final salary and can be up to 150% of that figure, depending upon length of service. If your funds are transferred out now, into a Personal Retirement Bond, you retain this option. With a PRSA you are currently allowed to take 25% of the value of the fund.

So, in the case of a fund of say €60k, with a PRSA you can take €15k in tax-free cash; with a Personal Retirement Bond, if your salary at date of leaving was €40k and you had 20 years- service then the entire €60k would be paid out, tax free. (This figure would reduce if service was shorter.) The most important point here is that with the PRSA you have only one choice; with the Personal Retirement Bond you have the choice of either and you decide which is most beneficial to you.

Clearly, if you are one of the many people who have a funds left in a previous employer’s pension scheme then you need to take action and you should take it sooner rather than later. We would urge you to seek the advice of a Financial Broker who can have a look at your situation and guide you in the right direction. This is an area we have a great deal experience and expertise in and we would be delighted to hear from you if you would like to get advice from one of our Qualified Financial Advisers.

Steadfast Financial
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